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Grantham: Biggest Housing Bubble Since 807 A.D. Has Burst

Preface: Many claim that housing is currently experiencing a
rebound. Whether or not that ends up being verified, the housing crash
which started in 2007 was so massive that it is historic in its
significance.

Top economists and economic agencies have recently verified that
bubbles cause huge crashes, and are thus bad for the economy. See this, this and this.

Jeremy Grantham just said that our recent bubble was the largest in 1,200 years:

Investors should be wary of a Fed [who] is led by a guy [Bernanke] who couldn’t see a 1-in-1200-year housing bubble!

2007 – when the housing bubble popped – minus 1,200 years brings us to 807 A.D.
To give a sense of how long ago that was, Charlemagne had just defeated the Saxons
– one of the tribes forming the famed Anglo-Saxons – and forcibly
converted them to Christianity. England didn’t become a country until
hundreds of years later, during the Norman Conquest of 1066 .
But the housing bubble which burst in 2007 was arguably the largest in history … ever.
As we’ve noted:

The real estate bubble formed the base upon which a
series of bubbles in derivatives were built. Specifically, mortgages
were packaged in “collateralized debt obligations” (CDOs), which were
sold in enormous volumes all over the world. Credit default swaps were
then bet against the companies which bought and sold the CDOs.
Now, with housing prices crashing, the CDO bubble is crashing, as is the CDS bubble.
A series of other derivatives bubbles are also crashing. For example, the “collateralized fund obligations”
– sort of like CDOs, but where the assets of a hedge fund are the asset
being bet on – are getting creamed as hedge funds are forced to sell
off many hundreds of billions in assets to cover margin calls.
As everyone knows, the size of the global derivatives bubble was
almost 10 times the size of the world economy [Update: It was actually 20 times the world economy]. And many areas of derivatives are still hidden and murky.
So the bust of the derivatives bubble could even be bigger than the bust of the housing bubble.